If you can’t manage your money now, what are you going to be like it you’ve suddenly got a lot?
The fact that many lotto winners end up broke is no myth.
Researchers analysed 35,000 lotto winners in Florida's Fantasy 5 lottery from 1993 to 2002, and found 1,900 winners went bankrupt within five years. Sharon Tirabassi won $US10 million in lotto too. Nine years later she was working part time and catching the bus to work so she could make rent payments.
The researchers surmised that financial literacy was an issue, as was their attitude more reckless to winnings than it may have been to earnings.
The decision to remain in your job after a windfall may actually contribute to you staying happy. But that aside, the biggest downside to a large windfall is stress. Demands and advice from family and friends, fear of losing the money again and a flood of people asking for money.
A NZ example
In 2012 Trevor Cooper from Te Kauwhata, went public about his huge win but went into hiding not long after when people started begging him for money. The checkout operator at the Huntly Countdown had vowed to keep working but he left his job, saying he was overwhelmed by the media's interest in his $26.5 million windfall.
So what is the best way to handle a sudden large amount of cash in your bank account?
Four practical steps you may want to consider in the event you come into some money:
- Get financially smart now. Don’t wait on the off chance you come into a serious amount of cash to get yourself out of trouble. If you can get yourself financially sorted now and can effectively manage what money you do have now, you’ll be much better for it in future.
- Take a break. Give yourself some time to pause, take stock, think… get used to the thought of having all that ‘extra’ money. Do nothing for as long as possible, to avoid acting on impulse.
- Tell as few people as you can. The more you tell, the more chance you’ll have people come knocking and asking.
- Get yourself a team of expert, professional Advisers (e.g. a financial Adviser, lawyer, accountant and tax expert). People who are properly registered and bound by a code of ethics will be able to give you advice and assist you in making the right decisions.